Tongasat's Flawed Genius

By David Mendosa

The little Pacific island nation
of Tonga became a satellite giant through a strange twist of fate. It happened
by chance because, one after the other, two neighbors who in 1987 were
living in San Diego, California, were looking for a tropical paradise where
they could retire.

Since both men were entrepreneurs, it didn't turn out that way at all.
For one of them, Dr. Matt Nilson, retirement plans led instead to the high
point of his eventful career and put Tonga on the satellite map of the
world. For the other, Jerry "J.J." Fletcher, it was a costly
experience.

Fletcher was the first of the two men to settle in the Kingdom of Tonga,
where about 102,000 people live on 169 islands that together are smaller
than the area of New York City. At the time he owned restaurants and motels
in San Diego, and Nilson was one of his customers, Fletcher recalls.

"Matt was not that much of a friend at the time," he says.
"My wife and the lady who was living with Matt were good friends.
After I moved to Tonga is when Matt became, quote, a good friend."

Fletcher planned to write books in his Tongan retirement and did write
one, Devils with Green Faces, a fictionalized account of his experiences
in Vietnam with the U.S. Navy. But like the entrepreneur he is, Fletcher
set up two little companies, Fletcher International Ltd., as an Anheuser-Busch
beer distributor, and Airport Services Ltd., which providing catering facilities
at the international airport for Nuka'alofa, the country's capital.

To get the health care he needed for infections left from his Vietnam
service, Fletcher subsequently returned to the United States. He now lives
on a 300-acre ranch with 11 quarter horses near Wickenburg, Arizona, and
owns a restaurant in Bethesda, Maryland. He says he lost money on the businesses
he ran in Tonga.

Meanwhile, Nilson says that he decided to retire and "change my
life entirely, because my wife died." He found out from Fletcher that
"Tonga was a good South Pacific paradise. I visited him and went back
and packed all my household goods and a couple of earth stations and went
to Tonga. I decided to move there and do nothing for a while, but it didn't
work that way."

The way it worked was that Fletcher's Tongan business partner, the late
Kelepi Tupou, was a good friend of Princess Salote Pilolevu Tuita. The
three of them were partners in the airport catering business. She recalls
that it was a pilot project for them to teach her about business.

"Matt was introduced to me within that circle," Princess Pilolevu
says. He told her that had the idea of getting the Government of Tonga
to apply for orbital slots. "After Matt convinced me in theory that
his idea was going to work, I said to him, 'I better talk to my father,
the King, to see if he thinks it is going to be worth the government's
time.'"

King Taufa'ahau Tupou IV was interested and agreed to meet with Nilson
in November 1987. Nilson says the King was aware that all of the South
Pacific suffered from poor and expensive communications, "so his natural
question to me as a satellite expert was, 'How can we improve this?'"

Nilson's response was a plan for Tonga to register orbital positions
with the International Telecommunications Union and build and operate satellites
in a joint venture with other South Pacific countries. To do that the government
of Tonga in April 1988 authorized Nilson to establish a Tongan company
as the exclusive agent of the government. The company was named Friendly
Islands Satellite Communications Inc. and does business as Tongasat.

Princess Pilolevu originally owned 40 percent of Tongasat's shares with
the balance equally divided among Nilson, Fletcher and Topou. Shortly before
Topou's death, he gave his shares to the Princess, who now holds a 60 percent
interest in Tongasat.

It was a good deal for Tonga. The agreement called for the government
to contribute no funds to Tongasat but collect half its net income. All
funds to get the new company off the ground came from Nilson who lend it
about $1 million.

Where did Nilson get that kind of money? Born in Sweden, he came to
the United States when he was 16. His doctorate is in engineering from
a Austrian university. Most of his life he had been a bureaucrat working
for General Dynamics, Comsat and Intelsat.

He says he retired the first time when he quit Intelsat in 1979 to found
Nilson Research Corporation, a telecommunications consulting firm. Then,
he started another company, Advanced Business Communications Inc., which
got conditional FCC approval to launch two satellites with his joint venture
partner, Hughes Aircraft Company.

Timothy Logue, a space and telecommunications analyst with Reid &
Priest in Washington, remembers that Nilson sold his controlling interest
to his venture partner as "a trial run for the Tongasat scenario."
It also pushed the limits of the FCC's tolerance, he recollects.

That project, however, did not make Nilson a wealthy man. "Hughes
Aircraft Company and ABCI jointly relinquished the planned early launches
due to a severe market slump forecast in 1985 and dissolved the joint venture,"
Nilson explains.

Instead, his money came from a successful gamble on the FCC's lottery
for cellular frequencies. Nilson made about 100 applications, and won one,
for Waco, Texas. Logue estimates that earned him about $2 million. Nilson
isn't saying, merely noting that "I did quite well on both ABCI and
the consulting activities."

His investment in Tongasat hasn't yet paid off that well. "I have
been reimbursed my outlays without profit," he states. But Forbes
recently estimated that the 20 percent of Tongasat that he owns plus 11
percent of a company that works with Tongasat is worth about $18 million.
Nilson scoffs. "That is too high, but it could be one day," he
maintains.

Before Tongasat could literally get off the ground and start generating
any profits, it had to win orbital positions from the ITU and then launch
some satellites. The first goal turned out to be difficult and the second
impossible.

Like many bureaucrats, Nilson knew that no matter how small Tonga was
it could claim some of the few remaining geostationary orbital parking
spaces. But unlike them, he also had the entrepreneurial drive and made
the right connections to carry out his daring plan. All these factors were
essential to his success. "A lot of people in telecommunications administrations
around the world and in the ITU itself would have known mechanically how
to do it, but to put the business together and start it is another thing,"
he reflects.

The people at Intelsat also knew how to get slots, but Nilson's bold
plan stunned and apparently blindsided them. Nilson's former employer and
fierce competitor felt he was poaching on Intelsat's turf and contended
that Tonga's applications for at least 16 slots were merely a front for
his financial speculation.

"The Tongasat deal was a scheme to use the sovereign nation of
Tonga as a ruse to lock up orbital slots that they would then try to sell
for profit," declares Tony Trujillo, Intelsat's director of corporate
communications. "It violated what was a gentleman's agreement that
countries only register for slots that they are actually going to use."

Call it a turf battle in outer space. And like battles with real bullets,
this one got nasty. Six countries, including the United States, complained
to the ITU that Tonga's claims were "greatly in excess of any projected
need." Competitors and detractors called it everything from exploiting
a loophole to a space grab. They called Nilson names like opportunistic,
a renegade and a slick operator. He may be that, but he certainly is a
colorful character in the otherwise rather bland world of satellite business.
And he is one savvy entrepreneur.

For years it was questionable whether Nilson would ever be able to pull
off his bold plan. Even he, optimist that he is, had his doubts. "Not
in the regulatory area, but in the business area," he admits today.

Eventually, Tongasat scaled back its requests to six slots, which the
ITU finally awarded in March 1991. A year later Tongasat won its seventh
slot. These crucial positions connect the West Coast of the United States
to Asia, one of the world's most important traffic streams, with 3.5 billion
people in the coverage pattern.

Nilson says that "from 1988 to 1991 we tried to enlist several
countries [in a joint venture with Tongat], but Intelsat's intervention
came in June 1990 and usurped our position of being able to get financing
to build and operate a system. That was a serious setback. So instead we
turned to operators who were interesting in doing their own financing and
in owing the satellites and operating them in our positions."

He was first able to breathe a sigh of relief in October 1991 when Tongasat
signed up Unicom Satellite Corporation as its licensee for two slots. "It
was a very unusual contract, namely a contract where they became a licensee
of Tongasat, where Tongasat is an agent of the Kingdom of Tonga."

That was unusual, Nilson says, "because this is an operator who
is not domestically owned or a majority owned corporation of Tonga. That's
where all the subsequent criticism has come in. But if you think about
it, there is nothing unusual about it, because PanAmSat is owned 50-50
by Mexican interests and is flying under a U.S. flag, so it is not much
different. AsiaSat flies under the flag of Hong Kong, which is really the
U.K. flag, but the U.K. has nothing to do with AsiaSat, other than Hong
Kong happens to be a crown colony."

With the Unicom contract in hand, Nilson thought he could finally relax,
because, "at least we knew we had one party who planned to put satellites
in three positions." That hope turned out, however, to be premature.

Unicom failed to get the financing it needed. But by the time that was
apparent, Nilson had signed up Rimsat Ltd., a Fort Wayne, Indiana, start-up
formed in April 1992. Rimsat has since put satellites in three of Tongasat's
positions and has options on two more.

This year Tongasat licensed one position to APT Satellite Company, a
Hong Kong-based consortium that is principally owned by three ministries
of the Peoples Republic of China. Tongasat is in discussions with several
groups for its last available position.

But just as the ultimate success of Tongasat was apparent to the world,
it caved in on Nilson. In his words, Nilson "founded, funded, initiated,
developed, marketed and financed Tongasat over six and one-half years from
October 1987 to February 1994."

What happened in February was that he was fired as Tongasat's managing
director. Nilson likes to put a happier face on it, citing "business
differences of opinion" on how Tongasat should be run in the future.
"It is simply a matter of that, and there is no animosity."

The differences of opinion he's talking about turn out to be an alleged
conflict of interest and the results of an audit by Price Waterhouse of
Auckland, New Zealand. Another little difference is the suit that Nilson
has brought against Tongasat.

"Matt's litigation arises out of the board's decision in February
to relieve him of his position as managing director and the shareholder's
decision in late February or early March to remove Nilson Research Corporation
as a member of the board," declares Tony Fitch, senior counsel at
Swidler & Berlin Chartered, a Washington law firm, which is representing
the defendants. Nilson's suit in the U.S. District Court for the District
of Columbia is against Princess Pilolevu, Fletcher, and Tongasat.

Princess Pilolevu says discharging Nilson was painful after "knowing
somebody and trusting him for five years." She says that Nilson had
called her "and tried to convince me that it was for the good of Tongasat
that he was going to buy shares in Rimsat." Then she learned that
even before his call "he had put things in motion."

Did that make her mad? "Yes," she replies firmly. "It
was a slow anger, but unfortunately with slow anger it builds up."
It's her understanding now that Nilson both owns stock in Rimsat and is
a director.

Nilson doesn't deny it. His resume states that "Dr. Nilson is a
shareholder and serves as a director of Rimsat Ltd." He says that
Rimsat wanted him to have some ownership initially, "but I considered
that would be looked upon as a conflict of interest." So he says he
waited until the end of 1993 to exercise an option to purchase 11.25 percent
of Rimsat's stock.

Then, when Price Waterhouse audited Tongasat's books "they couldn't
get Dr. Nilson to send the originals of a lot of his receipts," Princess
Pilolevu says. "He just sent them copies, but no Price Waterhouse
auditor would accept copies. The conflict started with that. And also with
personal expenses. Dr. Nilson said he believed they were company expenses.
Things like that, and it went on and on, and it was pretty upsetting."

Are there any suspicions of embezzlement? "I wouldn't like to say
so at this stage," Princess Pilolevu responds. "I feel that I
am walking on eggshells, because we were very good friends. To part in
this manner is very painful. I am grateful to Matt for giving us the idea
and for helping us to initiate Tongasat."

In fact, conciliation efforts are underway. At Nilson's request, Sione
Kite, Tonga's High Commissioner to the United Kingdom, called International
Cable from Kyoto, Japan, where he was attending an international conference.
He asked for a postponement of this article in hopes that "an amicable
settlement" could be worked out.

Whatever the outcome of those efforts, Nilson deserves credit for creating
the world's most remarkable satellite institution. That makes the current
furor with Tongasat all the more poignant a personal tragedy for him. As
one close observer who does not want to be quoted by name says, "Matt
put a lot into starting this. Had he been satisfied he could have been
on easy street forever."

Perhaps the best summary of Nilson's complex personality is one offered
by Dr. Wilbur L. (Bill) Pritchard, his successor as Tongasat's managing
director. Pritchard, who has known Nilson for a quarter of a century, characterizes
Nilson as "a flawed genius, but a man with some very creative ideas."

Princess Pilolevu agrees with Pritchard's assessment. "Matt is
a brilliant man, but one has to be careful that brilliance doesn't outshine
other things that are more important," she reflects.

Nobody should imagine that at 56 Nilson is finished. He is already planning
other entrepreneurial ventures, "but not related to the provision
of satellite services per se. They are in other fields that will perhaps
will use satellite communications. I've retired twice, so now I have to
do something else, so I can retire a third time," he says with a grin.

An edited version of this article appeared as "Turf battles
in outer space," International Cable, December 1994, pages
18-24.